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Liquidator Remuneration Update - The consequences of the Sakr Saga

Back in March 2017 the NSW Court of Appeal handed down the unanimous decision in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38 (Sakr), reigning in Brereton J’s application of proportionality to liquidator’s remuneration. This week the decision of in the matter of Australian Company Number 074 962 628 Pty Ltd (in liq) (formerly Colonial Staff Super Pty Ltd) [2017] NSWSC 370 (Colonial Super) was handed down by the NSW Supreme Court. The decision is notable as one of the first applications of the principles enunciated in the Sakr decision.

Background

Colonial Super is concerned with the application for determination of liquidator fees. The liquidator made no realisations, and was seeking a distribution greater than the funds held by the company. However, much can be said of the novel facts before the court for consideration.

Colonial Staff Super Pty Ltd (the Company) was the trustee of the Colonial Group Staff Superannuation Fund (the first super fund), which was a super fund established for certain employees of The Colonial Mutual Life Assurance Society Ltd (Colonial Mutual). Back in 1997, Colonial Mutual demutualised, and became Colonial Ltd. As part of the demutualisation, the assets in the first super fund were to be transferred into a new fund known as the Colonial Group Staff Superannuation Scheme (the second super fund). The Company was subsequently voluntarily wound up by its members and deregistered in 2000.

In 2003 Colonial was acquired by the Commonwealth Bank (CBA), and the assets of the second super fund were transferred into a final new fund known as the Commonwealth Bank Officers Superannuation Fund (the third super fund).

In 2011, a former employee of Colonial Ltd and the CBA, Peter Beck, commenced proceedings against CBA and the trustee of the third super fund (the Beck proceedings). The Beck proceedings also concerned the conduct of the Company as trustee of the first super fund. The Court, on the application of Beck, reinstated the Company so it could be joined as a defendant. Although the Company was reinstated, it remained in liquidation, and did not actively participate in the Beck proceedings. The Company, through its liquidator, simply monitored the proceedings.

Beck was initially successful against the CBA and the trustee of the third super fund at trial, but this decision was overturned by the Court of Appeal. The High Court refused special leave in March 2017.

At the conclusion of the Beck proceedings, the liquidators of the Company applied to the Supreme Court of NSW for a determination of their remuneration, costs, and a distribution of the Company’s assets for payment thereof. The only assets of the company were approximately $33,000, provided by the trustee of the third super fund to fund the costs of the Company. While the total amount purportedly incurred by the liquidator was approximately $38,000, the liquidator was prepared to accept the $33,000 as payment for its costs and remuneration.

Consideration

The question before Gleeson JA in Colonial Super was whether this was an appropriate quantum for remuneration. His Honour referred to section 504(2) of the Corporations Act 2001 (Cth) (the Act), which sets out the plurality of factors the court is to considering in answering this question. Gleeson JA noted that a number of the factors in 504(2) have as their “unifying theme the concept of proportionality”. The concept of proportionality as applied to liquidator’s fees have received much judicial consideration of late. Further discussion of the issue can be found in our previous article on the topic here.

His Honour also referred to the recent Sakr decision, which we have previously covered here, and summarised the three key propositions that arose out of that case:

Liquidators bear an onus to establish to the court that their remuneration is reasonable and the it is the role of the court to “determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues”.

Various factors as set out in section 504 of the Act have proportionality as their “unifying theme” and proportionality is an “important consideration in determining reasonableness”.

The mere fact that work performed does not lead to the realisation of funds for distribution does not mean that a liquidator is not entitled to be remunerated for the work. If it was reasonable to carry out the work, and the amount charged is reasonable, then there is “no reason a liquidator should not recover remuneration”.

Gleeson JA went on to consider the evidence provided by the liquidator and concluded that there was a great deal of work performed that went beyond what was required and incidental to the monitoring of the Beck proceedings. Further, the work was done in an efficient manner, by persons of appropriate level of seniority, and the time spent reflected the work required to be undertaken. His Honour also noted that the amount claimed was modest, that the Beck proceedings were substantial and complex, and that the liquidator was taking a hit on their remuneration to ensure that the costs were met out of the limited pool of resources available.

For these reasons Gleeson JA concluded that remuneration should be determined on a time-charge basis, as opposed to an ad valorem basis, and accepted the liquidator’s claim.

Take away points

The case represents one of the first applications of the Sakr decision, and serves as a reminder as to the principles enunciated therein. Whilst Sakr has been celebrated by insolvency practitioners for reigning in the application of the principle of proportionality championed by Brereton J, it is important to note principles 1 and 2 as set out by Gleeson JA above.

That is, liquidators bear an onus to establish their costs are reasonable, and that proportionality is an important consideration in determining reasonableness. That is to say, proportionality still has a role to play in determining the remuneration of insolvency practitioners, but it cannot be the only consideration, and just because a task did not lead to a recovery for distribution, that does not mean it is disproportionate.

Further, the present case is notable for the pragmatic approach taken by Gleeson JA in considering the work done by the liquidator in determining that costs were reasonable. In determining reasonableness, his Honour considered what work was done, by whom, how long was spent on it, the complexity and extent of the work, and the fact that the liquidators would be unable to fully recover their costs. The focus on these practical considerations as opposed to an emphasis on proportionality should continue to give comfort to insolvency practitioners in the post-Sakr world.

Ultimately though, whilst this most recent case is an example of the application of the Sakr decision. it must be noted that the factual scenario was not a particularly controversial or complex one. In circumstances where the Sakr judgment also affirmed that proportionality would be an “important consideration in determining reasonableness” it will be interesting to see how the Courts may approach more contentious and/or ambiguous matters going forward.

Compare jurisdictions:Restructuring & Insolvency

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